The moment you’ve made the decision to start your own business is when you should start looking into tax information for small businesses. Doing so ensures you set up your business properly from the beginning of the process, which is preferable to having to go back and fix something or pay a penalty for a tax law of which you were unaware. Get the facts before you get the fines.
Understand Tax Deductibles
Never assume when it comes to taxes or the IRS. In terms of knowing what’s considered a tax deductible, expenses that are necessary, helpful and appropriate for your business are likely business expenses. For instance, buying a computer solely for your business is an acceptable deduction. Only using that computer for work less than 50 percent of the time, however, isn’t appropriate or necessary for your business. It then cannot be considered a business expense.
Examples of items that aren’t considered business expenses include traffic tickets received over the course of business, bribes and home telephone lines. None of these expenses are necessary for the regular operation of your business.
Using Your Car for Business
While you can qualify for a tax deduction by using your personal car for business purposes, you’ll want to deduct expenses correctly. One way to do this is by counting each mile driven for business purposes over the course of a single tax year. You also have the option of deducting the cost of operating your car for commercial purposes as well as the cost of depreciation. Specifically, you can deduct the cost of oil changes, gas, licensing fees and routine maintenance. In either case, only count miles and expenses for business purposes and not those related to personal reasons.
You can also deduct the cost of operating your business, which includes advertising expenses, commercial repairs, office supplies and utilities. Know that these expenses are only counted after you’ve officially opened your business and not before. As of 2016, $5,000 is the maximum amount you can deduct the first year you’re in business. Anything higher will have to be equally split up over the course of 15 years.
Current and Capital Expenses
Something else to understand when it comes to being a small business owner is there’s a difference between current and capital expenses. Current expenses are deducted from your business income for the current tax year and consist of the everyday cost of doing business, such as rent, business supplies and utilities. Capital expenses are those that create future business revenue and are legally required to be written off over their useful lives, which stretches anywhere from three, five or seven years. Something to remember about capital expenses is Section 179 deduction allows you to deduct a capital expense in the tax year incurred.
Should you ever foot the bill for entertaining potential or current clients or customers, you can deduct half of the cost. The expense has to be directly connected to your business as well as the business you discuss during the entertaining event. The expense can also be written off if it’s related to your business and the entertainment occurs either after or before a business meeting. Just make sure you write down the name of the individual or group entertained and the purpose of the event.
Home Office Tax Deduction
If you use your home as your base of operations, you only qualify for the home office tax deduction if you use the office solely for business purposes. Using it partly for personal use does not qualify you for the deduction. For more information on small business taxes, be sure to consult with a tax attorney or accountant before the end of the tax year and throughout. Doing so is sure to save time and maybe even your business.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.